Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Morning, Michael, Morning Dragon.
Speaker 2 (00:03):
I just wanted to say that from now on, whenever
I pass gas, I'm just going to say, my butt
is breathing.
Speaker 3 (00:11):
Yeah, exactly, exactly makes perfect sense to me.
Speaker 4 (00:16):
It makes perfect sense. And that you know that, just
that just fulfills my soul because we like to think
that we provide a service, and that's an example of
a great service that we provide.
Speaker 3 (00:32):
If you can learn one thing by listening to the
situation with Michael Brown.
Speaker 1 (00:37):
Our work is done.
Speaker 3 (00:39):
We're done.
Speaker 1 (00:39):
We're done.
Speaker 4 (00:40):
I had a text message that reminded me about some
other renovations to the White House, and then that reminded
me about I forgot to put Jackie Kennedy on the
White House on the renovation list, because Jackie Kennedy, at
taxpayer expense, renovated the tire interior the White House. In fact,
(01:02):
it was so lauded, so wonderful that CBS News did
a complete special viewed by I forget what the number was,
but you know, tens of millions of people watched it,
and it was well, it went sort of like this.
Speaker 1 (01:21):
I'm not gonna play the whole thing, but just give
you an idea.
Speaker 3 (01:24):
On f Kennedy, created and produced by CBS News for
the CBS television network.
Speaker 4 (01:31):
The the graphic is a tour of the White House
and she's walking down the Colonnade hall from the East
wing toward the West wing.
Speaker 1 (01:44):
And listen to the music, just compare.
Speaker 3 (01:48):
You won't be on the podcast, but I'll find it
and put it up at Michael says, go here, it's
in the It's.
Speaker 4 (01:53):
On YouTube on the CBS News archives, and it imagine
imagine Trump scrolling down the Colonnade and you know, CBS
News and Dallas special Donald Trump and the renovation of
the White House. My, how things have changed. I love
(02:14):
that quote from tr You know, as the as the
people's house, it should be kept as it is. And
then he proceeds to completely renovate it and add on
a complete section to it. And it just it goes
on and on and on. She goes through and she's
describing things. Yeah, what's fascinating is right there where they're
(02:34):
showing the exterior walls, you're seeing what I just described
as the original White House. Can't see the West wing,
can't see the East wing. You just see the north portico.
And and that's I'm sorry on this particular view. It's
the South Portico. Yeah, that's all you see. But oh no,
(02:55):
we gotta go backcrap crazy because Donald Trump tore down
part of the wing is going to renovate it. I'm
so tired of it. I'm really tired of it. Anyway,
moving on to what I really wanted to talk about.
I want to talk about meat.
Speaker 1 (03:09):
Beef.
Speaker 4 (03:11):
I love steak. I love hamburgers, big, juicy, juicy hamburgers.
Apparently ranchers are upset with Trump, but I think they
might be upset with the wrong person. I want to
talk about beef. I want to talk about what Trump's done,
and I want to talk a little bit about the
(03:32):
meat packing cartels. Yes, we've got a meat packing cartel
in this country. The Biden years kind of left us
with the subn fact beef stayed expensive and cattle herds shrank.
Now do you remember back earlier we were talking about
the oil and gas embargo, and you know, there's lots
(03:54):
of oil and gas and opek, particularly Saudi Arabia, they
wanted more money for their oil, so they cut production.
And when they cut production, the price of gas in
this country went skyrocketing. Huh, So what do you think
happens when the numbers in cattle herds begin to shrink
prices go up. Trump's second term, Trump two point zero
(04:19):
tried to confront that reality regarding beef directly. First he
told us the truth about supply and demand. He told
us the truth about supplying price, and then he started
using trade tools to try to rewire where our supplemental
beef comes from. And I particularly put that word supplemental
beef in there because we don't and can't get I
(04:41):
suppose we could over time, but we cannot right now
get all of the beef we consume from domestic production.
We have to import some. So the announced beef arrangement
with Argentina fits a wider strategy. It is not a subsidy,
it's a swap. It sources the lean trimmings that we
(05:02):
already import from a friend at a lower tariff cost,
and away from a supplier that's now facing punitive duties
because of broader disputes that.
Speaker 1 (05:14):
We have Brazil now.
Speaker 4 (05:17):
The result is modest relief and ground beef prices no
hit to us cattleman who remain constrained by biology, weather
and time. So let's just start with the market that
we actually have, you know, start start with the reality
on the ground, not the one that the critics want
(05:41):
to imagine. Roughly half of all beef eaten in this
country is hamburger, and hamburger, unlike a steak, is a blend.
Us feedlocked cattle produce abundant fatty trim to fifty fat.
(06:02):
It's actually a byproduct of the marble cuts that actually
pay the bills.
Speaker 1 (06:08):
So if you want to achieve.
Speaker 4 (06:09):
Say an eighty twenty blend or a ninety ten blend,
packers the meat packers have to the rent. No give me.
Maybe I should be even more basic to get that
blend that occurs at the meat packing plant. It doesn't
occur at the ranch where the cattle are. It doesn't
(06:30):
even occur at the feed lots. It occurs in the
meat packing plants. Now I want to add a little
asterisk here. I'm gonna add a footnote.
Speaker 1 (06:39):
The beef.
Speaker 4 (06:40):
Now not all beef, because occasionally we will get something
from the grocery store, but we keep usually a side
of beef from a local rancher at home. We buy direct.
They pick a cow, they take it to a processor,
not a meat plant. They take it to a small
(07:02):
processor and they process it for us. They cut it
up to what we want X number of steaks, x
number of hamburger, X number of this cut x number
of that cut. So that's how that's how it works.
When I talk about these blends. The packers have to
mix that domestic fat beef with very lean beef, often
(07:28):
ninety percent or more. And that historicality comes from two places,
call cows in the domestic herd and imports of lean
processing beef. So when the cow herd is tight domestically
as it is now after drought driven liquidation, the domestic
(07:49):
source of very lean trend starts to fall short. Imports
fill that gap because the demand is still there. So
if the man still remains up here and I've got
my arms above my head, if the demand remains up
here but the supply is mixed, domestic is falling very short,
(08:13):
imports fill that gap. Now, I'm not conjecturing here that
I'm not there's no conjecture. Is It is the standard
explanation offered by beef economists, And of course, the USDA
market notes without the imported lean trim, a sizable share
(08:33):
of domestic fat trim would be downgrade to tallow rather
than sold as hamburger, and consumers.
Speaker 1 (08:41):
Would pay even more, and overall.
Speaker 4 (08:44):
Demand for beef would soften. Now that context makes the
Argentina move pretty straightforward, because Argentina is already already a
meaningful player in our imports. It is the fifth largest
supplier by volume, with shipments measured in tens of millions
(09:08):
of pounds. Brazil, who is not our friend, by contrast,
surged to become the second largest supplier earlier this year,
even the largest supplier, riding record high US prices and
record low US cow inventories. This is so such pure
(09:32):
economics of play here. So when Trump imposed heavy retaliatory
tariffs on Brazilian goods, raising Brazilian over quota duties to
a prohibitive level, that signal that Brazil's beef would likely
start to recede, withdraw perhaps to zero next year. Now,
(09:56):
if a major supplier steps out under punitive rates, somebody's
got to step in, or retail prices for beef at
the grocery store will climb even higher. Now, this announced
US Argentina understanding does just that. It removes the ten
percent tariff applied to Argentine quota trimmings, and it expands
(10:21):
practical access, so it makes Argentine lean trim competitive without
any subsidies from US and without increasing total import valumes.
The composition of the beef shifts, the total amount of
beef does not shift, doesn't increase or decrease. I know
(10:43):
that people are worried about displacement, meaning that cheaper Argentine
beef depresses US production.
Speaker 1 (10:50):
No, that is not true.
Speaker 4 (10:53):
The key distinction is product type, US rancher specializing grain finished,
well marbled cattle that generates what would I just say
the phrase well marbled? What do you think? You don't
think a hamburger? At least you shouldn't. When I say
well marbled, you ought to be thinking about old ribbis,
(11:14):
New York strips, flays, well marbled steaks and roasts, and
of course some faty trim Argentine achievements like shipments like
those from Australia New Zealand are overwhelmingly lean processing beef
that's headed into grinders. Why make hamburger? These are compliments,
(11:36):
They're not substitutes. They make each other valuable. Lean imports
allow US packers to sell every ounce of domestic fat
trim as part of a burger blend. They're doing that
instead of sending it off to a renderer to be
used for, you know, some other product that you can
(11:56):
make out of beef fat.
Speaker 1 (11:59):
The imp lean does not listen closely.
Speaker 4 (12:03):
The imported lean that we're now taking from Argentina does
not replace a single t bone, a single ribbi, or
a single brisket from a US steer. It enables instead
the full monetization of that animal that the rancher has
already raised.
Speaker 1 (12:24):
This is why, in a year with record.
Speaker 4 (12:26):
Imports, cash cattle prices still set record highs. The domestic
shortfall dominates the price formation, and imports simply cap the extremes. Now,
second confusion is volume. Now remember just to make sure
you understand the roadmap where we're going, we're talking about
(12:48):
beef production right now before we get to actual beef processing.
So the second confusion is volume. Could Argentina flood our
market with tariffs if the tariffs vanish? I don't think so.
Because Argentina's total exportable supply is finite. It's bounded by
(13:12):
its own very high domestic beef consumption, which, by the way,
with all due respect to American farmers and ranchers. Argentine steaks. Oh, baby,
you talk about something really good. If you ever have
the chance to go to Buenos Aires or Mendos or
anywhere else and have a really good Argentine steak, do it. Oh,
(13:37):
American steaks are still wonderful, but Argentine steaks pretty damn good,
Pretty damn good. So even if we doubled or tripled
Argentine sales to this country, it would barely register as
a share of total US beef consumption in use. So
some analysts have run the math and they've concluded that
(14:00):
even extreme scenarios would amount to maybe a couple of
points of US supply at most, nowhere near enough to
knock to knock down domestic production. So in practice, the
Argentina opening is simply going to backfill the hole that's
left by Brazil and partially offset type supplies that we
(14:24):
also get from Australia and New Zealand while their herds
are being rebuilt. Same problem. You've got droughts and you've
got a reduction in the number of head in Australia
and New Zealand. So all of this is simply a
reallocation of import sources. It's not an expansion this design
(14:48):
to undercut US ranchers.
Speaker 1 (14:52):
So why are ranchers bitching?
Speaker 4 (14:55):
Will hang on because price effects deserve some careful.
Speaker 1 (14:59):
Understanding, Michael.
Speaker 5 (15:02):
Usually, as I have you on the background and I
drift in and out before I get up for the day,
I have to go back and listen to the podcast
just to make sure I caught everything. But this time
I'm really excited to listen to the first hour or
two because I'm really fascinated to hear how you connect
your love of meat, meat packing, and butt breathing.
Speaker 1 (15:21):
This is going to be interesting.
Speaker 4 (15:25):
Some people are just sick, just sick, and we're proud
to have them as a part of the audience.
Speaker 1 (15:33):
That's the sad part.
Speaker 3 (15:34):
Do you expect anything less from one of the twelve?
Speaker 4 (15:37):
No, but you would think out of twelve that we
would find one normal person.
Speaker 3 (15:42):
I don't know they listen to this show. None of
them are normal.
Speaker 1 (15:45):
I just it.
Speaker 4 (15:48):
But I feel like I'm violating the affirmative action rules
by not having at least one normal person among the
jury of twelve. So maybe we should add a substitute, like,
you know, a alternate juror maybe we should get the
thirteenth one, and the requirement would be that we get
to do a psyche valve to make sure that they're normal,
(16:11):
and then they could just sit on the side. You know,
they still had to listen. They couldn't participate. But if
we had to kick somebody off because they got two
sick or perverted, we could just PLoP that person in.
Speaker 3 (16:23):
That'd be so much work to find a normal person
amongst this group.
Speaker 1 (16:28):
Oh, we'd have to go outside.
Speaker 4 (16:30):
In fact, we might have to. I mean, don't tell
the other twelve, but we might have to pay a
premium to get a normal.
Speaker 1 (16:38):
Person to listen. So there goes the big fat raises.
We were going to get big fat raises.
Speaker 3 (16:48):
So long Christmas bonus.
Speaker 4 (16:50):
Yeah, you mean we couldn't give them our King Super's
gift guard.
Speaker 1 (16:55):
Tell them a year go buy fourteen years ago, go
buy a tenth.
Speaker 4 (16:59):
Of a pound of beef. Well, okay, let's talk about
price prices. The promised benefit of all of this is
not going to be a price collapse. And I'm talking
about retail prices, not prices that the cattlemen are getting
at the ranch. It is marginal relief and it is
(17:20):
concentrated in ground beef. Just go through the mechanics with
me for a minute. A blender's cost is the weighted
cost of the lean beef and the fat inputs. Domestic
fat tram is tied to fed cattle values. Those are
elevated right now because our domestic herd is so small.
(17:42):
The lean component is either domestic cow beef, which is
scarce because ranchers are holding back efferts to try to
rebuild their herds, or it has to come from imported beef.
So if we replace tariff burden Brazilian lean beef with
ten free Argentina lean beef, then all else being equal,
(18:05):
the input cost falls by just a few cents per pound.
A few cents at the input stage yields just a
few percent at the real retail case where you actually
pick it up once grinding, packaging, retail margins. Everything else
then gets included in that final price that you pay
(18:26):
when you pick it up at the grocery store. There
are multiple agricultural economists that have described the likely price
effect in just that way. A very slight moderation and
ground beef costs maybe somewhere between two and five percent
compared to the counterfactual.
Speaker 1 (18:47):
That is enough to matter to families.
Speaker 4 (18:50):
Especially because beef has been to stand out in grocery
store inflation, but it is not enough to dent the
profitability of cattle, which is set by the scarcity of
the finished animal. Now I get that one might object
at imports. However targeted, they might be still lower overall
(19:12):
beef prices, and so they've got to be hurting the ranchers.
Let's look at the data. The US imported record volumes
in twenty twenty four. We've imported even larger volumes in
twenty twenty five, Yet fed cattle and feeder prices also
set records. So the tightness of the domestic herd overwhelmed
(19:37):
any marginal dampening from those imports. Imports instead filled a hole,
They didn't create a glut. In fact, by keeping ground
beef from becoming unaffordable, the imports helped preserve total beef
demand that in turn supported what are called the cut
(20:00):
out values that make ranchers hole. Now, if you're a rancher,
you know, but people in the city don't. A shrunken
herd takes years to rebuild.
Speaker 1 (20:15):
You don't.
Speaker 4 (20:15):
You don't go to the cattle store and buy a
you know, a three year old cow.
Speaker 1 (20:24):
It takes time.
Speaker 4 (20:26):
You've got to go through the breeding I mean, let's
let's get down to the nitty gritty. You got to
go through the breeding process. You got to calve them,
they've got to grow. I mean, it takes all of
that takes time during that rebuilding window measured in seasons,
not in weeks. It's better to keep consumers in the
(20:48):
category with reasonably priced hamburger than to push them into
substitution toward other meats like chicken or pork, the other
white meat. That is the conservative pro producer pro consumer equilibrium.
Maintain demand now, rebuild supply patiently, and avoid demand destruction
(21:14):
that would punish the ranchers later because they're in the
process of rebuilding right now. Then there's the whole issue
of food safety. I hear objections about food safety. Did
we lower our standards to be from Argentina.
Speaker 1 (21:32):
No.
Speaker 4 (21:33):
Argentina regained access back in twenty eighteen only after the
USDA verified the sanitary systems and their equivalents after a
seventeen year absence related to animal health, and since then,
Argentine exports to the US have operated under the same
(21:55):
inspection and residue regimes that govern all the other eligible countries.
So the present arrangement changes tariffs, it doesn't even touch
the sanitary rules. If anything, sourcing more from a competent
democracy aligned with standards is safer than relying on suppliers
(22:17):
in more opaque jurisdictions think Brazil. The risk control remains
where it should be in science based inspection and incertification,
not on the tariffs. And then there's this, I personally
think absurd objection political why reward Argentina trade policy is
(22:44):
a tool. Trade policy is used for both domestic price
stability and our international national security strategic alignments.
Speaker 1 (22:56):
Argentina under Malay.
Speaker 4 (22:58):
Has pursued market reforms, They pursued pro us diplomacy, They
pursued government liberalization in the classical sense of liberalization.
Speaker 1 (23:08):
It is in our interests to see that succeed.
Speaker 4 (23:13):
Allowing Argentine producers to earn dollar revenues by selling a
commodity that we already buy is a low cost way
to bolster a friendly government. At the same time, Trump
sent a very clear signal to Brazil because he raised
duties amid a broader dispute about trade behavior treatment of
(23:36):
our political allies, and I think personally most importantly Brazil's
alignment with China. This is another forty E chess move
to cut off China, to say, okay, few countries that
are dealing with China. They're making all these deals with China,
hold my beer. If Brazil chooses to forego the United
(23:58):
States market rather than adjust, we already have alternatives by
strengthening our links with Argentina, Mexico, Canada, and Australia. We
do that without binding us to any one provider. Go
back and think about supply chains and how during COVID
(24:19):
we learn, Oh my gosh, you mean all our antibotics
come from one place. Now, think about beef, something that
we all, not all, but most rational people consume. There's
a smartest remark that most rational people consume beef. Do
you want it to be solely linked to one provider
and one provider that has links to communists China in fact,
(24:42):
favors communist China over us. No diversity becomes resilience. It
becomes resilience in our supply chain, It becomes resilience in
our food chain.
Speaker 1 (24:54):
Now, the legal mechanics of this are pretty.
Speaker 4 (24:58):
Narrow, and actually, I quite frankly think they're targeted. It's
a targeted calibration, but it's not a wholesale rewrite of
trade law. But I think there's a useful economic analogy.
Think of USBEF complex as a two input production process
for a very ubiquitous everywhere consumer good. Input A domestic
(25:24):
fat trim abundant tied to the value of fed cattle.
Input B is very lean trim, which is scarce domestically
as they go through the rebuilding phase.
Speaker 1 (25:36):
And therefore is sourced abroad.
Speaker 4 (25:39):
If you lower the tax on input B from a
friendly supplier while raising it greatly on a less friendly supplier,
you reduce the expected cost variance of the production process,
and you reduce the level of cost as well. You
have not in increase the total use of input be
(26:02):
beyond the quantity that the demand already requires. You've only
changed who supplies it. The optimized production process then keeps
the composite good, which is hamburger meat, within reach for consumers,
and that keeps the entire demand schedule for beef higher
than it otherwise would be. There's an upstream effect. The
(26:27):
upstream effect is it supports the prices of fed cattle
that yield input a which is domestic.
Speaker 1 (26:34):
Other words, cheaper lean imports.
Speaker 4 (26:37):
Keep the value of domestic fat trim higher, and that's
good for the ranchers. There's yeah, I was gonna go
down the slippery slope. But what I really want to
do is I really want to start the beef meat
packing cartels. Let's do that next instead.
Speaker 2 (26:57):
I can't see how half of that BAF that we
consume is in the form of hamburger. Do you think
we should encourage Trump to put the hamburglar on the
terrorist watch group? I think it would be a good idea.
Speaker 4 (27:14):
We're better yet, since he loves McDonald's, I think on
the new ballroom out front, we ought to have the
hamburglar and Ronald McDonald and kind of make it like
an interest into McDonald's, make the make the front of
the White House on the on the east end look
(27:36):
like the now boxy McDonald's they make everywhere with the
golden arches out front.
Speaker 3 (27:41):
As long as they put in a playplace and ye for.
Speaker 4 (27:44):
The kids exactly so all of so, while all of
the old hippies and and the you know, the everybody
else that protests and bitches about everything over Lafayette Park.
They can just put their kids in the play place. Well,
they marched to and down the White House. It's a
win win for everybody. McDonald's golden arches OBUs, you don't
(28:17):
have time to get to meatpacker time to get to
the meatpacking cartels. Anyway, I just want you to understand
what I think is going on about. Yeah, the ranchers
are bitching. All you hear is they're upset about this
(28:39):
deal with Argentina they're upset about. I think they're directing
their anger in the wrong place, and I think they're
doing so because they dare not bitch at the real
cause of the low prices. They're getting paid for a
headache for their heads of cattle, and I think that's
(29:01):
the meatback.
Speaker 1 (29:02):
I'll explain why I think that coming up next
Morning, Michael, Morning Dragon.
Speaker 2 (00:03):
I just wanted to say that from now on, whenever
I pass gas, I'm just going to say, my butt
is breathing.
Speaker 3 (00:11):
Yeah, exactly, exactly makes perfect sense to me.
Speaker 4 (00:16):
It makes perfect sense. And that you know that, just
that just fulfills my soul because we like to think
that we provide a service, and that's an example of
a great service that we provide.
Speaker 3 (00:32):
If you can learn one thing by listening to the
situation with Michael Brown.
Speaker 1 (00:37):
Our work is done.
Speaker 3 (00:39):
We're done.
Speaker 1 (00:39):
We're done.
Speaker 4 (00:40):
I had a text message that reminded me about some
other renovations to the White House, and then that reminded
me about I forgot to put Jackie Kennedy on the
White House on the renovation list, because Jackie Kennedy, at
taxpayer expense, renovated the tire interior the White House. In fact,
(01:02):
it was so lauded, so wonderful that CBS News did
a complete special viewed by I forget what the number was,
but you know, tens of millions of people watched it,
and it was well, it went sort of like this.
Speaker 1 (01:21):
I'm not gonna play the whole thing, but just give
you an idea.
Speaker 3 (01:24):
On f Kennedy, created and produced by CBS News for
the CBS television network.
Speaker 4 (01:31):
The the graphic is a tour of the White House
and she's walking down the Colonnade hall from the East
wing toward the West wing.
Speaker 1 (01:44):
And listen to the music, just compare.
Speaker 3 (01:48):
You won't be on the podcast, but I'll find it
and put it up at Michael says, go here, it's
in the It's.
Speaker 4 (01:53):
On YouTube on the CBS News archives, and it imagine
imagine Trump scrolling down the Colonnade and you know, CBS
News and Dallas special Donald Trump and the renovation of
the White House. My, how things have changed. I love
(02:14):
that quote from tr You know, as the as the
people's house, it should be kept as it is. And
then he proceeds to completely renovate it and add on
a complete section to it. And it just it goes
on and on and on. She goes through and she's
describing things. Yeah, what's fascinating is right there where they're
(02:34):
showing the exterior walls, you're seeing what I just described
as the original White House. Can't see the West wing,
can't see the East wing. You just see the north portico.
And and that's I'm sorry on this particular view. It's
the South Portico. Yeah, that's all you see. But oh no,
(02:55):
we gotta go backcrap crazy because Donald Trump tore down
part of the wing is going to renovate it. I'm
so tired of it. I'm really tired of it. Anyway,
moving on to what I really wanted to talk about.
I want to talk about meat.
Speaker 1 (03:09):
Beef.
Speaker 4 (03:11):
I love steak. I love hamburgers, big, juicy, juicy hamburgers.
Apparently ranchers are upset with Trump, but I think they
might be upset with the wrong person. I want to
talk about beef. I want to talk about what Trump's done,
and I want to talk a little bit about the
(03:32):
meat packing cartels. Yes, we've got a meat packing cartel
in this country. The Biden years kind of left us
with the subn fact beef stayed expensive and cattle herds shrank.
Now do you remember back earlier we were talking about
the oil and gas embargo, and you know, there's lots
(03:54):
of oil and gas and opek, particularly Saudi Arabia, they
wanted more money for their oil, so they cut production.
And when they cut production, the price of gas in
this country went skyrocketing. Huh, So what do you think
happens when the numbers in cattle herds begin to shrink
prices go up. Trump's second term, Trump two point zero
(04:19):
tried to confront that reality regarding beef directly. First he
told us the truth about supply and demand. He told
us the truth about supplying price, and then he started
using trade tools to try to rewire where our supplemental
beef comes from. And I particularly put that word supplemental
beef in there because we don't and can't get I
(04:41):
suppose we could over time, but we cannot right now
get all of the beef we consume from domestic production.
We have to import some. So the announced beef arrangement
with Argentina fits a wider strategy. It is not a subsidy,
it's a swap. It sources the lean trimmings that we
(05:02):
already import from a friend at a lower tariff cost,
and away from a supplier that's now facing punitive duties
because of broader disputes that.
Speaker 1 (05:14):
We have Brazil now.
Speaker 4 (05:17):
The result is modest relief and ground beef prices no
hit to us cattleman who remain constrained by biology, weather
and time. So let's just start with the market that
we actually have, you know, start start with the reality
on the ground, not the one that the critics want
(05:41):
to imagine. Roughly half of all beef eaten in this
country is hamburger, and hamburger, unlike a steak, is a blend.
Us feedlocked cattle produce abundant fatty trim to fifty fat.
(06:02):
It's actually a byproduct of the marble cuts that actually
pay the bills.
Speaker 1 (06:08):
So if you want to achieve.
Speaker 4 (06:09):
Say an eighty twenty blend or a ninety ten blend,
packers the meat packers have to the rent. No give me.
Maybe I should be even more basic to get that
blend that occurs at the meat packing plant. It doesn't
occur at the ranch where the cattle are. It doesn't
(06:30):
even occur at the feed lots. It occurs in the
meat packing plants. Now I want to add a little
asterisk here. I'm gonna add a footnote.
Speaker 1 (06:39):
The beef.
Speaker 4 (06:40):
Now not all beef, because occasionally we will get something
from the grocery store, but we keep usually a side
of beef from a local rancher at home. We buy direct.
They pick a cow, they take it to a processor,
not a meat plant. They take it to a small
(07:02):
processor and they process it for us. They cut it
up to what we want X number of steaks, x
number of hamburger, X number of this cut x number
of that cut. So that's how that's how it works.
When I talk about these blends. The packers have to
mix that domestic fat beef with very lean beef, often
(07:28):
ninety percent or more. And that historicality comes from two places,
call cows in the domestic herd and imports of lean
processing beef. So when the cow herd is tight domestically
as it is now after drought driven liquidation, the domestic
(07:49):
source of very lean trend starts to fall short. Imports
fill that gap because the demand is still there. So
if the man still remains up here and I've got
my arms above my head, if the demand remains up
here but the supply is mixed, domestic is falling very short,
(08:13):
imports fill that gap. Now, I'm not conjecturing here that
I'm not there's no conjecture. Is It is the standard
explanation offered by beef economists, And of course, the USDA
market notes without the imported lean trim, a sizable share
(08:33):
of domestic fat trim would be downgrade to tallow rather
than sold as hamburger, and consumers.
Speaker 1 (08:41):
Would pay even more, and overall.
Speaker 4 (08:44):
Demand for beef would soften. Now that context makes the
Argentina move pretty straightforward, because Argentina is already already a
meaningful player in our imports. It is the fifth largest
supplier by volume, with shipments measured in tens of millions
(09:08):
of pounds. Brazil, who is not our friend, by contrast,
surged to become the second largest supplier earlier this year,
even the largest supplier, riding record high US prices and
record low US cow inventories. This is so such pure
(09:32):
economics of play here. So when Trump imposed heavy retaliatory
tariffs on Brazilian goods, raising Brazilian over quota duties to
a prohibitive level, that signal that Brazil's beef would likely
start to recede, withdraw perhaps to zero next year. Now,
(09:56):
if a major supplier steps out under punitive rates, somebody's
got to step in, or retail prices for beef at
the grocery store will climb even higher. Now, this announced
US Argentina understanding does just that. It removes the ten
percent tariff applied to Argentine quota trimmings, and it expands
(10:21):
practical access, so it makes Argentine lean trim competitive without
any subsidies from US and without increasing total import valumes.
The composition of the beef shifts, the total amount of
beef does not shift, doesn't increase or decrease. I know
(10:43):
that people are worried about displacement, meaning that cheaper Argentine
beef depresses US production.
Speaker 1 (10:50):
No, that is not true.
Speaker 4 (10:53):
The key distinction is product type, US rancher specializing grain finished,
well marbled cattle that generates what would I just say
the phrase well marbled? What do you think? You don't
think a hamburger? At least you shouldn't. When I say
well marbled, you ought to be thinking about old ribbis,
(11:14):
New York strips, flays, well marbled steaks and roasts, and
of course some faty trim Argentine achievements like shipments like
those from Australia New Zealand are overwhelmingly lean processing beef
that's headed into grinders. Why make hamburger? These are compliments,
(11:36):
They're not substitutes. They make each other valuable. Lean imports
allow US packers to sell every ounce of domestic fat
trim as part of a burger blend. They're doing that
instead of sending it off to a renderer to be
used for, you know, some other product that you can
(11:56):
make out of beef fat.
Speaker 1 (11:59):
The imp lean does not listen closely.
Speaker 4 (12:03):
The imported lean that we're now taking from Argentina does
not replace a single t bone, a single ribbi, or
a single brisket from a US steer. It enables instead
the full monetization of that animal that the rancher has
already raised.
Speaker 1 (12:24):
This is why, in a year with record.
Speaker 4 (12:26):
Imports, cash cattle prices still set record highs. The domestic
shortfall dominates the price formation, and imports simply cap the extremes. Now,
second confusion is volume. Now remember just to make sure
you understand the roadmap where we're going, we're talking about
(12:48):
beef production right now before we get to actual beef processing.
So the second confusion is volume. Could Argentina flood our
market with tariffs if the tariffs vanish? I don't think so.
Because Argentina's total exportable supply is finite. It's bounded by
(13:12):
its own very high domestic beef consumption, which, by the way,
with all due respect to American farmers and ranchers. Argentine steaks. Oh, baby,
you talk about something really good. If you ever have
the chance to go to Buenos Aires or Mendos or
anywhere else and have a really good Argentine steak, do it. Oh,
(13:37):
American steaks are still wonderful, but Argentine steaks pretty damn good,
Pretty damn good. So even if we doubled or tripled
Argentine sales to this country, it would barely register as
a share of total US beef consumption in use. So
some analysts have run the math and they've concluded that
(14:00):
even extreme scenarios would amount to maybe a couple of
points of US supply at most, nowhere near enough to
knock to knock down domestic production. So in practice, the
Argentina opening is simply going to backfill the hole that's
left by Brazil and partially offset type supplies that we
(14:24):
also get from Australia and New Zealand while their herds
are being rebuilt. Same problem. You've got droughts and you've
got a reduction in the number of head in Australia
and New Zealand. So all of this is simply a
reallocation of import sources. It's not an expansion this design
(14:48):
to undercut US ranchers.
Speaker 1 (14:52):
So why are ranchers bitching?
Speaker 4 (14:55):
Will hang on because price effects deserve some careful.
Speaker 1 (14:59):
Understanding, Michael.
Speaker 5 (15:02):
Usually, as I have you on the background and I
drift in and out before I get up for the day,
I have to go back and listen to the podcast
just to make sure I caught everything. But this time
I'm really excited to listen to the first hour or
two because I'm really fascinated to hear how you connect
your love of meat, meat packing, and butt breathing.
Speaker 1 (15:21):
This is going to be interesting.
Speaker 4 (15:25):
Some people are just sick, just sick, and we're proud
to have them as a part of the audience.
Speaker 1 (15:33):
That's the sad part.
Speaker 3 (15:34):
Do you expect anything less from one of the twelve?
Speaker 4 (15:37):
No, but you would think out of twelve that we
would find one normal person.
Speaker 3 (15:42):
I don't know they listen to this show. None of
them are normal.
Speaker 1 (15:45):
I just it.
Speaker 4 (15:48):
But I feel like I'm violating the affirmative action rules
by not having at least one normal person among the
jury of twelve. So maybe we should add a substitute, like,
you know, a alternate juror maybe we should get the
thirteenth one, and the requirement would be that we get
to do a psyche valve to make sure that they're normal,
(16:11):
and then they could just sit on the side. You know,
they still had to listen. They couldn't participate. But if
we had to kick somebody off because they got two
sick or perverted, we could just PLoP that person in.
Speaker 3 (16:23):
That'd be so much work to find a normal person
amongst this group.
Speaker 1 (16:28):
Oh, we'd have to go outside.
Speaker 4 (16:30):
In fact, we might have to. I mean, don't tell
the other twelve, but we might have to pay a
premium to get a normal.
Speaker 1 (16:38):
Person to listen. So there goes the big fat raises.
We were going to get big fat raises.
Speaker 3 (16:48):
So long Christmas bonus.
Speaker 4 (16:50):
Yeah, you mean we couldn't give them our King Super's
gift guard.
Speaker 1 (16:55):
Tell them a year go buy fourteen years ago, go
buy a tenth.
Speaker 4 (16:59):
Of a pound of beef. Well, okay, let's talk about
price prices. The promised benefit of all of this is
not going to be a price collapse. And I'm talking
about retail prices, not prices that the cattlemen are getting
at the ranch. It is marginal relief and it is
(17:20):
concentrated in ground beef. Just go through the mechanics with
me for a minute. A blender's cost is the weighted
cost of the lean beef and the fat inputs. Domestic
fat tram is tied to fed cattle values. Those are
elevated right now because our domestic herd is so small.
(17:42):
The lean component is either domestic cow beef, which is
scarce because ranchers are holding back efferts to try to
rebuild their herds, or it has to come from imported beef.
So if we replace tariff burden Brazilian lean beef with
ten free Argentina lean beef, then all else being equal,
(18:05):
the input cost falls by just a few cents per pound.
A few cents at the input stage yields just a
few percent at the real retail case where you actually
pick it up once grinding, packaging, retail margins. Everything else
then gets included in that final price that you pay
(18:26):
when you pick it up at the grocery store. There
are multiple agricultural economists that have described the likely price
effect in just that way. A very slight moderation and
ground beef costs maybe somewhere between two and five percent
compared to the counterfactual.
Speaker 1 (18:47):
That is enough to matter to families.
Speaker 4 (18:50):
Especially because beef has been to stand out in grocery
store inflation, but it is not enough to dent the
profitability of cattle, which is set by the scarcity of
the finished animal. Now I get that one might object
at imports. However targeted, they might be still lower overall
(19:12):
beef prices, and so they've got to be hurting the ranchers.
Let's look at the data. The US imported record volumes
in twenty twenty four. We've imported even larger volumes in
twenty twenty five, Yet fed cattle and feeder prices also
set records. So the tightness of the domestic herd overwhelmed
(19:37):
any marginal dampening from those imports. Imports instead filled a hole,
They didn't create a glut. In fact, by keeping ground
beef from becoming unaffordable, the imports helped preserve total beef
demand that in turn supported what are called the cut
(20:00):
out values that make ranchers hole. Now, if you're a rancher,
you know, but people in the city don't. A shrunken
herd takes years to rebuild.
Speaker 1 (20:15):
You don't.
Speaker 4 (20:15):
You don't go to the cattle store and buy a
you know, a three year old cow.
Speaker 1 (20:24):
It takes time.
Speaker 4 (20:26):
You've got to go through the breeding I mean, let's
let's get down to the nitty gritty. You got to
go through the breeding process. You got to calve them,
they've got to grow. I mean, it takes all of
that takes time during that rebuilding window measured in seasons,
not in weeks. It's better to keep consumers in the
(20:48):
category with reasonably priced hamburger than to push them into
substitution toward other meats like chicken or pork, the other
white meat. That is the conservative pro producer pro consumer equilibrium.
Maintain demand now, rebuild supply patiently, and avoid demand destruction
(21:14):
that would punish the ranchers later because they're in the
process of rebuilding right now. Then there's the whole issue
of food safety. I hear objections about food safety. Did
we lower our standards to be from Argentina.
Speaker 1 (21:32):
No.
Speaker 4 (21:33):
Argentina regained access back in twenty eighteen only after the
USDA verified the sanitary systems and their equivalents after a
seventeen year absence related to animal health, and since then,
Argentine exports to the US have operated under the same
(21:55):
inspection and residue regimes that govern all the other eligible countries.
So the present arrangement changes tariffs, it doesn't even touch
the sanitary rules. If anything, sourcing more from a competent
democracy aligned with standards is safer than relying on suppliers
(22:17):
in more opaque jurisdictions think Brazil. The risk control remains
where it should be in science based inspection and incertification,
not on the tariffs. And then there's this, I personally
think absurd objection political why reward Argentina trade policy is
(22:44):
a tool. Trade policy is used for both domestic price
stability and our international national security strategic alignments.
Speaker 1 (22:56):
Argentina under Malay.
Speaker 4 (22:58):
Has pursued market reforms, They pursued pro us diplomacy, They
pursued government liberalization in the classical sense of liberalization.
Speaker 1 (23:08):
It is in our interests to see that succeed.
Speaker 4 (23:13):
Allowing Argentine producers to earn dollar revenues by selling a
commodity that we already buy is a low cost way
to bolster a friendly government. At the same time, Trump
sent a very clear signal to Brazil because he raised
duties amid a broader dispute about trade behavior treatment of
(23:36):
our political allies, and I think personally most importantly Brazil's
alignment with China. This is another forty E chess move
to cut off China, to say, okay, few countries that
are dealing with China. They're making all these deals with China,
hold my beer. If Brazil chooses to forego the United
(23:58):
States market rather than adjust, we already have alternatives by
strengthening our links with Argentina, Mexico, Canada, and Australia. We
do that without binding us to any one provider. Go
back and think about supply chains and how during COVID
(24:19):
we learn, Oh my gosh, you mean all our antibotics
come from one place. Now, think about beef, something that
we all, not all, but most rational people consume. There's
a smartest remark that most rational people consume beef. Do
you want it to be solely linked to one provider
and one provider that has links to communists China in fact,
(24:42):
favors communist China over us. No diversity becomes resilience. It
becomes resilience in our supply chain, It becomes resilience in
our food chain.
Speaker 1 (24:54):
Now, the legal mechanics of this are pretty.
Speaker 4 (24:58):
Narrow, and actually, I quite frankly think they're targeted. It's
a targeted calibration, but it's not a wholesale rewrite of
trade law. But I think there's a useful economic analogy.
Think of USBEF complex as a two input production process
for a very ubiquitous everywhere consumer good. Input A domestic
(25:24):
fat trim abundant tied to the value of fed cattle.
Input B is very lean trim, which is scarce domestically
as they go through the rebuilding phase.
Speaker 1 (25:36):
And therefore is sourced abroad.
Speaker 4 (25:39):
If you lower the tax on input B from a
friendly supplier while raising it greatly on a less friendly supplier,
you reduce the expected cost variance of the production process,
and you reduce the level of cost as well. You
have not in increase the total use of input be
(26:02):
beyond the quantity that the demand already requires. You've only
changed who supplies it. The optimized production process then keeps
the composite good, which is hamburger meat, within reach for consumers,
and that keeps the entire demand schedule for beef higher
than it otherwise would be. There's an upstream effect. The
(26:27):
upstream effect is it supports the prices of fed cattle
that yield input a which is domestic.
Speaker 1 (26:34):
Other words, cheaper lean imports.
Speaker 4 (26:37):
Keep the value of domestic fat trim higher, and that's
good for the ranchers. There's yeah, I was gonna go
down the slippery slope. But what I really want to
do is I really want to start the beef meat
packing cartels. Let's do that next instead.
Speaker 2 (26:57):
I can't see how half of that BAF that we
consume is in the form of hamburger. Do you think
we should encourage Trump to put the hamburglar on the
terrorist watch group? I think it would be a good idea.
Speaker 4 (27:14):
We're better yet, since he loves McDonald's, I think on
the new ballroom out front, we ought to have the
hamburglar and Ronald McDonald and kind of make it like
an interest into McDonald's, make the make the front of
the White House on the on the east end look
(27:36):
like the now boxy McDonald's they make everywhere with the
golden arches out front.
Speaker 3 (27:41):
As long as they put in a playplace and ye for.
Speaker 4 (27:44):
The kids exactly so all of so, while all of
the old hippies and and the you know, the everybody
else that protests and bitches about everything over Lafayette Park.
They can just put their kids in the play place. Well,
they marched to and down the White House. It's a
win win for everybody. McDonald's golden arches OBUs, you don't
(28:17):
have time to get to meatpacker time to get to
the meatpacking cartels. Anyway, I just want you to understand
what I think is going on about. Yeah, the ranchers
are bitching. All you hear is they're upset about this
(28:39):
deal with Argentina they're upset about. I think they're directing
their anger in the wrong place, and I think they're
doing so because they dare not bitch at the real
cause of the low prices. They're getting paid for a
headache for their heads of cattle, and I think that's
(29:01):
the meatback.
Speaker 1 (29:02):
I'll explain why I think that coming up next
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
CrimeLess: Hillbilly Heist
It’s 1996 in rural North Carolina, and an oddball crew makes history when they pull off America’s third largest cash heist. But it’s all downhill from there. Join host Johnny Knoxville as he unspools a wild and woolly tale about a group of regular ‘ol folks who risked it all for a chance at a better life. CrimeLess: Hillbilly Heist answers the question: what would you do with 17.3 million dollars? The answer includes diamond rings, mansions, velvet Elvis paintings, plus a run for the border, murder-for-hire-plots, and FBI busts.